Missouri scheme sues State Street over demands for co-mingled fund reinstatement; adds to heat on custodian

Missouri Public School Retirement System has added to the pension fund legal action against State Street following the custodian’s demand for the System to return USD4.2 billion to its securities lending programme.

Missouri had withdrawn around USD7 billion in assets from the bank’s co-mingled Quality D fund to a separate account, between October 2008 and June 2009, to the detriment to the fund’s liquidity and the other investors in the fund, according to the bank. 

Missouri is claiming against a breach of fiduciary duty, breach of contract, and is seeking a restraining order on the bank to take further action should the securities not be returned. The bank has since filed an application to the Missouri Circuit Court to have the restraining order removed. Analysts at the system have estimated the cost of returning the assets at USD125 million.

The lawsuit refers to a call from State Street on 16^th September demanding a return of the securities.

The case occurs two months after CalPERS and CalSTRS launched a suit against State Street for mis-trading in its foreign exchange service for California’s two biggest pension schemes.